The Treasury secretary sweepstakes

Lawrence Summers or Tim Geithner? Is there really any difference, besides style?

Published November 11, 2008 10:49PM (EST)

To say that Jim Cramer foamed at the mouth during his "Mad Money" CNBC show last Friday is as unexceptional as noting that stock prices rose and fell that same day. Cramer's shtick is to rave, and his gimmick is as much performance art as it is a vehicle for any true emotion. Normally, I ignore his crystal-meth hopped-up ramblings, but I couldn't help paying attention this time after starting to hear him go off on the possibility that the president of the New York Federal Reserve Bank, Timothy Geithner, might be Barack Obama's choice for Treasury secretary.

Extremely attentive How the World Works readers will recall that I have been paying attention to Geithner since September 2006, when he gave an important speech: "Hedge Funds and Derivatives and Their Implications for the Financial System."

As I wrote then:

Financial panics start when traders and bankers who call in loans or sell off their holdings at the first sign of trouble set off a cascading effect in which everybody else follows their example and the system implodes under the strain. Paradoxically, Geithner appeared to be saying, the more flexible the system, the more quickly such a cascade could happen, and the harder it could be to stop.

There's a good case to be made that during the Bush administration, Geithner was the most senior government regulator to express serious foreboding at the vulnerability of the financial system to a disruptive shock brought about, in part, by unregulated credit derivatives. Geithner also made serious efforts to address the issue, strongly encouraging the CEOs of Wall Street's big financial institutions to bring greater transparency and order to the trading of such financial instruments as credit swaps. Like most Cassandras, however, his warnings were generally ignored until it was too late. But throughout the crisis, he has been on the front lines, along with Hank Paulson and Ben Bernanke, striving to keep financial markets from completely melting down.

Given that background, my predisposition has been to think that he might make a good pick for Treasury secretary. This is especially true when one considers that the other man currently rumored to be a top contender, Lawrence Summers, was Treasury secretary during the exact period when credit derivatives were specifically deregulated. Phil Gramm gets the lion's share of the blame for financial market deregulation, but as I have noted here many times, a bipartisan effort during the Clinton administration ensured that Wall Street could run amok.

So never mind Summers' comments on women and science at Harvard or his much-criticized (and ancient) World Bank memo hypothetically supporting the export of pollution to Africa. The real knock on Summers is that he was a standard-bearer for generally unsuccessful Washington Consensus policies of deregulation and privatization, and he played at least a minor role in nurturing some of the excesses that contributed to today's mess.

But last Friday, Jim Cramer's animus was solely directed at Tim Geithner. I half-expected Cramer to begin vomiting over his computer monitors, so much bile did he spew. He called Geithner a slick manipulator who knew how to talk to the press, and blamed him, specifically, for the decision not to bail out Lehman Brothers -- a move now widely considered to be a huge mistake. The very thought that Geithner might become Treasury secretary made Cramer "sick."

We've enjoyed the benefits of a fair amount of reporting on Summers and Geithner in recent days. Noam Scheiber's piece in the New Republic is the best so far, with the Wall Street Journal adding some more detail on Saturday. Scheiber is the only commentator so far I've seen who has noted Geithner's earlier calls for better regulation and greater transparency. More intriguingly, he asserts that Geithner lobbied for more aggressive intervention to save Lehman.

While the deliberations among Geithner, Paulson, and Bernanke remain opaque, there is a growing consensus on Wall Street and in Washington that Geithner would have been more reluctant to let Lehman go if left to his own devices.

But as James Surowiecki points out in his new economics blog, that's not how contemporaneous news accounts reported it -- according to the New York Times, Paulson, Bernanke and Geithner were all on the same page. There's also the worrisome news that Geithner recently appointed a former Bear-Stearns risk management executive who managed to be explosively wrong in performing his duties to an important Fed position.

Is the new historical revisionism a sign of Geithner's media savvy? Suffice to say, there are likely very few people who know what really happened in those crazy days of mid-September, and Jim Cramer, who has been wrong about so many things, is hardly the man to trust. One can only hope that as the Obama transition team proceeds with all "deliberate haste" to make their decision, they will be getting to the bottom of exactly this mystery.

But there is a larger issue here. As Scheiber and the Wall Street Journal both report, Geithner was Summers' protégé at the Treasury Department -- choosing between the two men is hardly a choice between ideologies. One can even argue that, as judged by his Financial Times columns over the past two years, Summers has come a long way from the go-go market fundamentalist days of the 1990s. Now he's a strong advocate of aggressive economic stimulus, government intervention, and even increased regulation.

Which really shouldn't be that much of a surprise. One thing that virtually everyone, whether pro or con Summers, agrees upon, is that Summers is a very smart person. Most smart people reviewing the current wreckage of Wall Street realize that the policies of the past are no longer functional and that a new course must be set. The question is, who will be most effective in setting that course -- the former occupant of the office, Lawrence Summers, a man well known to be arrogant and impolitic, or his younger, slicker, more-adept-in-the-ways-of-compromise-and-negotiation protégé Tim Geithner?

Or perhaps Obama will choose someone completely different! There are voices on the left who rage against the possibility of anyone associated with Wall Street status quo being put in charge of the economy. Then again, appointing someone who isn't intimate with the nature of the beast poses its own challenges. How can you tame it, or kill it, if you don't know what you're dealing with?

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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Globalization How The World Works Larry Summers Timothy Geithner Wall Street